Healy Tibbitts Constr. Co. v. Employers' Surplus Lines Ins. Co.

• Decision Date: 19 August 1977
• Citation: 72 Cal.App.3d 741,140 Cal.Rptr. 375
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 A.L.R.3d 1258 HEALY TIBBITTS CONSTRUCTION CO., etc., Plaintiff, Cross-Defendant, Appellant and Respondent, v. EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, etc., Defendant, Cross-Complainant, Respondent and Appellant, Kelly, Kinkead & Hoag, Defendant and Appellant. Civ. 38897.

Page 375

140 Cal.Rptr. 375

72 Cal.App.3d 741, 97 A.L.R.3d 1258

HEALY TIBBITTS CONSTRUCTION CO., etc., Plaintiff, Cross-Defendant, Appellant and Respondent, v. EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, etc., Defendant, Cross-Complainant, Respondent and Appellant Kelly, Kinkead & Hoag, Defendant and Appellant.

Civ. 38897.

Court of Appeal, First District, Division 2, California.

Aug. 19, 1977.

Hearing Denied Oct. 13, 1977.

Cooley, Godward, Castro, Huddleson & Tatum, Thomas A. H. Hartwell, San Francisco, for plaintiff, cross-defendant, appellant and respondent Healy Tibbitts Const. Co.

George H. Hauerken, Cyril Viadro, Hauerken, St. Clair, Zappettini & Hines, San Francisco, for defendant, cross-complainant, respondent and appellant Employers' Surplus Lines Ins. Co.

James E. Martin, San Francisco, Richard G. Logan, Oakland, for defendant and appellant Kelly, Kinkead & Hoag.

COHN, ^* Associate Justice.

This case involves the interpretation of certain language in an insurance policy providing 'all risk' coverage for an underwater construction project. The facts essential for the determination of the case may be summarized as follows:

The Carmel Sanitary District of Carmel-By-The-Sea ('District') wanted to build an outfall pipe and diffuser system by which the treated sewage accumulated in its treatment plant ashore could be carried away and disposed of in the deep sea. The project required the construction of an effluent line (a concrete lined pipe extending way into the ocean) which was to be buried in the ocean floor in order to be protected against waves and surf action. The installation of the effluent line, the primary subject of the project, necessitated the construction of a temporary trestle. The trestle, which constituted an integral part of the whole project, performed two main functions. One, it was utilized as a place from which the ocean depth was measured for the purpose of insuring a gradual descent of the effluent line. Two, it also served as a platform from which the excavations and pipe-laying operations were conducted.

Pursuant to bid, the building of the above described project was awarded to plaintiff Healy Tibbitts Construction Company, a general contractor specializing in underwater marine construction (hereinafter 'appellant' or 'contractor'). The contract specifications required that before commencing the work the contractor submit written evidence that he had obtained so-called builders' risk 'all-risk' insurance coverage upon the entire project, including completed work and work in progress. Accordingly, the contractor requested its broker, Kelly, Kinkead & Hoag (hereafter 'Hoag') to review the contract specifications and obtain the necessary insurance. Hoag contacted Walter Clark, an underwriter with Sayre & Toso, which in turn was the underwriting manager of respondent and cross-appellant Employers' Surplus Lines Insurance Company ('Employers'). In the course of their discussion, Hoag advised Clark in general terms of the construction project, including the fact that it called for the installation of a temporary trestle. Following his meeting with Clark, Hoag directed a memorandum to Clark dated May 24, 1971, which, in effect, confirmed his request for 'Builders' Risk 'All Risk' coverage (including Fire, Flood & Earthquake), including completed work and work in progress' with the insured amount of $408,400, and at a premium rate of two percent. Thereafter, Hoag received a cover note from Clark on behalf of Sayre & Toso, Inc., wherein they bound the risk, describing the coverage as "All Risk' Builders Risk (Installation Floater) as per form PP 1--54--0.'

As a result of the foregoing efforts, Employers issued an insurance policy covering the Carmel sewer project for the principal sum of $408,400, with a premium rate of two percent on said amount. The $408,400 figure represented the total contract price Which included the cost of the temporary trestle as well. The insurance policy which bore the description 'Installation Floater (Broad Form) Outfall Sewer, Carmel, California,' was sent to Hoag, who forwarded it to appellant with a transmittal letter stating that the Employers' policy covered the captioned job for the period June 4, 1971 to December 1, 1971, 'as per coverages outlined in the specifications.'

In reliance upon Hoag's representation that the construction at issue was fully covered by the insurance policy, appellant commenced its construction activities. The working trestle was installed first, 600 feet in length running into the ocean and across the surf line. On the outboard side, the trestle had a dogleg of approximately 225 feet. On or about November 29, 1971, in the course of pipe-laying operations, an ocean storm arose which destroyed the outboard 225 feet of the trestle constituting the dogleg. The incident caused considerable delay in the construction as well as sizable damages. As a result of the loss of the working platform, construction activities were suspended during the winter and the project was completed the following spring only by the added expense of applying a floating barge for the pipe-laying operations. As a consequence of the storm, the removal cost of debris also greatly increased.

Knowing that previous damage to the trestle, totaling $11,011.36, caused by two prior storms, had been paid, appellant submitted its claim to Employers to recoup the loss suffered due to the November 29 storm. Placing its primary reliance on the exclusionary clause, Employers rejected the claim on the ground that the temporary trestle was not insured under the policy.

Thereupon, appellant brought an action against both the insurance carrier and Hoag, seeking recovery in three counts. The first cause of action was directed against Employers and was predicated on breach of insurance contract. In the second and third causes, appellant stated alternative causes of action against Hoag in the event recovery on the first cause of action was denied. The theories advanced against Hoag were negligent failure to procure the type of insurance requested (second cause of action), and breach of contract to obtain insurance for appellant (third cause of action). Employers, in turn, filed a cross-complaint against appellant, contending that the two earlier claims had been paid by mistake and therefore are subject to recovery by the cross-complainant.

At trial, the court ruled that the policy as written failed to cover the temporary working trestle as a matter of law. The trial court nonetheless submitted the issue of coverage to the jury on the theory of estoppel based upon the representations made prior to and subsequent to the issuance of the policy. After hearing extensive evidence and being properly instructed, the jury rendered verdicts in favor of appellant and against Employers in the sum of $86,320; in favor of Hoag and against appellant; and in favor of appellant and against Employers on the latter's cross-complaint. At the same time, pursuant to an earlier stipulation of the parties, the court allowed prejudgment interest on the sum of $43,115 of the principal judgment from the date of the complaint.

Employers moved for a new trial and the motion for a new trial was granted on the ground of insufficiency of evidence to justify the verdict. Subsequently, at the request of appellant, and despite the fact that neither appellant nor Hoag had moved for a new trial, the court amended its prior order, nunc pro tunc, extending the order for a new trial to the judgment rendered in favor of Hoag as well and limited the new trial to the issue of liability. Appellant and Hoag appealed from the order granting a new trial; Employers, in turn, filed a notice of cross-appeal from the adverse judgments entered on the complaint and cross-complaint.

Although the parties raise a host of issues involving procedural as well as substantive matters, it clearly appears that the initial question presented for adjudication is whether the insurance policy in dispute covers the loss caused to the trestle. Since in order to answer this question we must interpret the insurance contract, first we will set out the basic principles controlling the interpretation of contracts, then proceed to review the pertinent provisions of the policy in light of the controlling principles of construction.

As has been frequently reiterated, the paramount rule governing the interpretation of contracts is to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful (CIV.CODE, S 1636¹; Lemm v. Stillwater Land & Cattle Co. (1933) 217 Cal. 474, 480, 19 P.2d 785; Bergin v. van der Steen (1951) 107 Cal.App.2d 8, 13, 236 P.2d 613; Shelley v. Hart (1931) 112 Cal.App. 231). The intention of the parties must, in the first instance, be derived from the language of the contract (French v. French (1945) 70 Cal.App.2d 755, 161 P.2d 687). The words, phrases, and sentences employed are to be construed in the light of the objectives and fundamental purposes of the parties to the agreement (Sawyer v. City of San Diego (1956) 138 Cal.App.2d 652, 661, 292 P.2d 233). In accordance therewith, it has been held that a contract entered into for the mutual benefit of the parties is to be interpreted so as to give effect to the main purpose of the contract and not to defeat the mutual objectives of the parties (Heidlebaugh v. Miller (1954) 126 Cal.App.2d 35, 38, 271 P.2d 557; Bradner v. Vasquez (1951) 102 Cal.App.2d 338, 343--344, 227 P.2d 559).

The specific rules pertaining to the construction of insurance contracts may be summarized as follows: Absent circumstances indicating a contrary intention, words in an insurance policy are to be used in their plain and ordinary sense (§ 1644; Jarrett v. Allstate Ins. Co. (1962) 209 Cal.App.2d 804, 811, 26 Cal.Rptr. 231). It is elementary that any ambiguity and uncertainty in an insurance policy is to be...